Materiality & Tolerable Misstatement

Materiality & Tolerable Misstatement

Part 1: Materiality & Tolerable Misstatement

Consider Ford’s 2007 10-K, and review the Materiality & Tolerable Misstatement Error slide show – to be attached. Review the “Risk Factors” (Item 1A) and the “Exhibits and Financial Statement Schedules” (Item 15). Assume that the overall control risk is very low. Do the following:

Materiality & Tolerable Misstatement

Assess inherent risk as high or medium.

Assume that you set audit risk as very low. Based on your assessment of inherent risk, set detection risk (high, medium, or low). Defend your answer.
Based on your assessment of detection risk and Ford’s 2007 Consolidated Balance Sheet (p. 114 of the 2007 10-K) and Consolidated Statement of Income (p. 111), set planning materiality (p. 43 has some selected financial data). Defend your answer.

Materiality & Tolerable Misstatement
Based on your planning materiality, assign tolerable misstatement to the appropriate balance sheet accounts. Provide the 2007 balance sheet with actual amounts and assigned tolerable misstatement. Defend your answer.

Materiality & Tolerable Misstatement

Along with a Word document containing your answers to the above questions, complete an Excel spreadsheet with a trial balance and an assessment of materiality. Determine the materiality and how it should be allocated across the accounts and the trial balance. Explain your allocations in the Word document.

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